The chief investment officer at the Financial Advisory firm Embark Group Peter Toogood said on Wednesday that the rising bond yield that had raised concerns last week in the equity market are due to a reluctance to take on debts of the country as the central banks are no longer doing it.
After almost three decades of bond bull market, the yields on U.S. Treasury have achieved multi-year highs which were facing a constant downtrend in the yields till last year. Currently, the benchmark 10-year U.S Treasury yield is at 2.835% after clipping of four-year high of 2.902% Monday. The bond yields move inversely to the prices.
Toogood predicted that the 10-year would surpass the 3%. He said that it will go past that and not for the right reasons as lot of debt is being issued and more people want money. People want to have a higher yield to take that debt.
Toogood specifically referred to the United States that is going to issue a trillion dollars in bonds. Part of the debt issuance is required for the massive government spending and decreased revenue due to the broad tax cuts along with a new $300 billion spending bill. The tax cuts are estimated to add to $1.5 trillion to the national deficit.
Because of what Trump has done, they now need to issue a trillion dollars of bonds into the market that has got $500 billion of narrowing from the Fed as they are going to be selling which is not a healthy requirement.
For the last ten years, the primary bond buyers have been the major central banks. U.S passed a record $20 trillion on the government debt last year as many countries hit the historic high in the public debt levels.
Many analysts are of the belief that the healthy global growth that has triggered inflation is the main cause behind the yield increase.
The last week’s wild ride of the stock market saw all the major index stepping into correction mode and was triggered by the rising concern over hiking bond yields, more inflation and spikes in the future interest rate as both the US wage and employment data get strong.